During the Great Recession of 2009, a fifty percent off coupons were the new full price. This is where Groupon got its big launch.
But after a few years, Groupon’s popularity faded because while customers did go to the new small businesses at half price, they never came back. Groupon got paid, but the business that offered the coupons ultimately lost money.
Digital discount coupons are on the rise. Ninety two percent of consumers used 66 million in 2013. Consumers love to shop with coupons to get a deal with sites like CouponsMonk, but do they work for small business? As with most marketing, it depends. The key is what type of customer is buying with the discount coupons? Will they only purchase the company’s product at a discount? Or will they try it at a discount and then buy at full price? One of my clients who runs a luxury services businesses found that the consumer that bought the discounted service at $50, never came back to pay $100 for the same thing.
It is critical to remember that the purpose of a discount coupon is for a qualified consumer to try a product or service.
Many consumers want an incentive to depart from their current buying habits and try something new. This is especially true if the company sells a commodity. The key for the small business is to keep them coming back! This was one of the biggest mistakes that companies that used Groupon made. Once they got the customer by offering fifty percent off discount coupons, they did nothing to identify that new customer and market to them to come back. If a company gives a discount to get the customer, they can make it profitable when they come back.
This is where a small business must consider the lifetime value of the customer (LTV). If it takes 50% off the sale price of $100 to attract a new customer, but on average, they purchase three more times, the discount coupon is small compared to their LTV.
It is critical for small businesses to test and track discount coupons to determine what is successful in attracting and retaining new customers. I suggest offering a discount of 20% instead of 50% to attract the consumer that would still buy at full price.
What has been your company’s experience?
